Fix The Biggest Problems In Your Business | Mike Michalowicz | Modern Wisdom Podcast 165

1. 0:00 – 15:00

   Well, I sent out…

   1. MMMike Michalowicz0:00

      Well, I sent out a survey about five years ago when I was first contemplating this book, and I said, "I wanna know what your biggest challenge is." And hundreds and hundreds of responses came back, and some people responded multiple times with different challenges. It became very clear very quickly that the biggest challenge business owners and entrepreneurs have is knowing, like, what their biggest challenge is. So the biggest challenge is simply knowing what the biggest challenge is. There's a lack of clarity. Everyone was rushing to the apparent. So that became the thesis of the book, to resolve that.

   2. CWChris Williamson0:33

      (wind blowing) Michael Michalowicz in the building. How are you doing, man?

   3. MMMike Michalowicz0:38

      I'm in the house. I'm doing well, mate. How are you?

   4. CWChris Williamson0:40

      Yeah, very good. Thank you. Nice use of mate as well, I like that.

   5. MMMike Michalowicz0:43

      (laughs)

   6. CWChris Williamson0:43

      It's like we've completely Anglicized everything, haven't we?

   7. MMMike Michalowicz0:46

      (laughs)

   8. CWChris Williamson0:46

      Yeah, it's good, it's good, man. So I, I... we're talking about business today, we're talking about how businesses can upgrade and up-level themselves. You know, we've got a period of entrepreneurial turmoil at the moment.

   9. MMMike Michalowicz0:57

      My gosh, yeah.

   10. CWChris Williamson0:58

       Big challenge. Um, let's forget the current situation that we're in. Why can operating a business be so difficult? Because you've got your product or your service-

   11. MMMike Michalowicz1:09

       Yeah.

   12. CWChris Williamson1:09

       ... and there's customers who need it-

   13. MMMike Michalowicz1:11

       Yeah.

   14. CWChris Williamson1:11

       ... so why, why does chaos ensue? Why is not just plain sailing?

   15. MMMike Michalowicz1:15

       Yeah, 'cause there's a million moving pieces. And I don't know if that's the exact number, but there's so many different elements that we need to do, so it's, it's a prioritization problem when, when everything comes at you equally. I, I think of many people come to work with a vision or plan for their work, I do, and yet you open email and there's this incessant, unstoppable chain of questions and direction and demand along with your vendors and clients. So it's, it's about being pulled in all these different directions. We don't prioritize, we don't know how to prioritize what we need to do, and, uh, and therefore we try to do everything with equal urgency. So I... you know, most business owners, it's just this circuitous circle of not making progress, but there's also this relentless need to do something, anything.

   16. CWChris Williamson1:59

       (laughs)

   17. MMMike Michalowicz2:00

       You know?

   18. CWChris Williamson2:00

       Yeah. (laughs) Are you, um... you use a term in your book about putting out fires-

   19. MMMike Michalowicz2:07

       Yeah.

   20. CWChris Williamson2:07

       ... and that, it's, it's funny that you say that, 'cause that's what me and my business partner constantly feel like we're doing, is just-

   21. MMMike Michalowicz2:13

       Yeah.

   22. CWChris Williamson2:13

       ... like what... you know that game of whack-a-mole?

   23. MMMike Michalowicz2:15

       Yeah, yeah. Oh, that's exactly what this is. You, you can never win, right? But, but the funny thing is, in whack-a-mole, you get points every time you hit the mole.

   24. CWChris Williamson2:22

       (laughs) Yeah, no... yeah, I get it.

   25. MMMike Michalowicz2:24

       And so in our business, you know, every time we accomplish something, we give ourselves that conscious or subconscious pat on the back, and say, "Ah, another thing down. Super hero swept in, saved the day yet again."

   26. CWChris Williamson2:35

       Yeah.

   27. MMMike Michalowicz2:35

       But then the next mole presents itself, and you're whacked in again. So this is actually human biology. We put extraordinary significance in recent emotion and wins, so completing something feels good, but we don't... we're not good at considering the long-term consequence. So we get this little endorphin release, "Completed a task, got that done," but we're not considering how that task will serve us in the long term, so it just becomes this perpetual series of just whacking things down.

   28. CWChris Williamson3:03

       I mean, perfect example of this is people that will be working from home at the moment for the first-ever time. I've had a lot of messages from people saying, "F- mate, I have no idea how you do this on a daily basis." They're used to working in an office-

   29. MMMike Michalowicz3:17

       Yeah.

   30. CWChris Williamson3:17

       ... perhaps with more structure-
2. 15:00 – 30:00

   (laughs) …

   1. MMMike Michalowicz15:00

      the business hierarchy of needs, which is order?" Order is the creation of efficiency. Efficiency gives the business strength because organizational efficiency reduces the dependency on any individual, that if the business owner gets sick, and that used to be an analogy, now it's very real, you can get sick (laughs) , and are taken out of the business for weeks or months, can the business continue to deliver on its values and promises to its clients? And this isn't true just for the boss, it's true for anyone in the organization. Um, can, can the... And, and the busi- and there's other opportunities in efficiency that as a business delivers on efficiency, it can bring more value and more margin to a business, benefiting profit. So these all work interrelated. The, the remaining two levels in the business hierarchy of needs are impact, impact is the creation of transformation. This is where your, your business is beyond the transaction of the service or products it provides, it's about transforming the lives of p- the people it touches. And then the highest level of business is called legacy, which is the creation of permanence. This is, when, when a business achieves permanence, what I found is that's when the business owner realizes they were never business owners. They were stewards of this organization. It's its own entity and it's meant to live on without them, beyond them. So these are the five levels. And w- the, the final thought I want to share about the business hierarchy of needs is this is not a ladder. It's not about climbing to the top and waving to your friends from the top. What it is, is a, is a pattern of needs that need to be addressed, and we simply ask our questions, "Is the base adequate to support the level above it? Is that level adequate to support the level above that?" And if not, we have to revert to the base. Like, like building a building, a structure of five stories, you don't start on the fourth story and say, "Let's put a building up here," and it falls into thin air and collapses. And at the same time, you don't build this massive basement foundation and put a little tool shed on top of it-

   2. CWChris Williamson16:48

      (laughs)

   3. MMMike Michalowicz16:48

      ... because it would fall in. They have to work relationally.

   4. CWChris Williamson16:52

      What are some of the common mistakes that you see business owners making which go against the fix this next analysis or, or the, the business hierarchy of needs? How do people get this as wrong as they can get?

   5. MMMike Michalowicz17:07

      Yeah. The, well, I'll give you the two most common because they come right to mind. The first most common, particularly in startup businesses, is they focus at the impact or legacy level. They, they go into business saying, "We want to change the world. I will do everything to be the, you know, the business that just changes everything." And then they don't think or consider the foundation (laughs) of sales. They don't master profit or efficiency, they just go, "We're changing the world." And very quickly, the business has no structural r- rigidity below it, and the business collapses on itself. There's these great ideas and concepts that just deflate upon themselves. So that's the most common problem. The second one is sales cures all. It is a horrible belief. They just build this foundation and foundation of sales. True story, I have a friend who, uh, a dear friend who had a company that did $250 million U.S. in annual revenue.

   6. CWChris Williamson18:01

      Wow.

   7. MMMike Michalowicz18:02

      And, yeah, exactly. And that's when people say, "Whoa, that's a big business." Um, and sadly, it collapsed within two weeks, not of the COVID virus, of a bad strategic decision they made six months ago, and the entire business collapsed (snaps fingers) like that-

   8. CWChris Williamson18:16

      Wow.

   9. MMMike Michalowicz18:16

      ... because they made a bad strategic decision. They didn't consider the next level of profit. They didn't bring stabili- financial stability to the organization. So it's a shame, but m- many business owners think that sales cures all, and our ego's tied to it. That's the kind of a third component. It's like, it's all about the Entrepajoneses. You know, "I got to keep up with you. You're doing a million? I got to do two million. You're doing two? I got to do five." It's this constant back and forth of the vanity metric of sales and revenue without the consideration of sanity of cash profits.

   10. CWChris Williamson18:49

       Man, top line is bullshit.... top line is-

   11. MMMike Michalowicz18:53

       It's total bullshit.

   12. CWChris Williamson18:54

       ... has been bullshit for as long as I've done business. So I'll tell you a little bit about what I do. I, I run nightclubs.

   13. MMMike Michalowicz19:00

       Yeah.

   14. CWChris Williamson19:00

       That's been my job. I'm a club promoter in the UK. We're fortunate, we've got a lot of cities, Newcastle, Manchester, Leeds, some big party cities, people like to go out and they like to have good events to head to, and thankfully, we can service that need. Um, but in our industry, it's very easy, it's like, um, it's kinda like a f- a football match or like a sports game-

   15. MMMike Michalowicz19:21

       Yeah.

   16. CWChris Williamson19:21

       ... every week, and you've got your match, and your competitors, your rival teams have all got their matches, and they say, "We did, we did 2,000 people tonight." "Well, we did 3,000 people tonight."

   17. MMMike Michalowicz19:32

       Yeah, yeah, yeah (laughs) right, right.

   18. CWChris Williamson19:33

       And you're like, "Well, I know for a fact that your venue capacity is only 1,800." It's like-

   19. MMMike Michalowicz19:38

       Yeah.

   20. CWChris Williamson19:38

       ... "Where did you fit the extra 1,200 people?" Um, uh, but there's, so I see this, right, I see this manifest in, everybody that's, that's listening will know the friend that talks about, maybe they don't give out the pure figures of how much money they took, but it's, it was this busy, or we did, a restaurant owner that always talks about how many covers they did last night. It's like, you're not telling me about how your business rates-

   21. MMMike Michalowicz20:02

       Right.

   22. CWChris Williamson20:02

       ... on that, in ridiculous location that you've got, are completely pulling your arse out.

   23. MMMike Michalowicz20:07

       Yeah. Yeah.

   24. CWChris Williamson20:08

       And, and, and you're having to pay yourself dividends out of the company in a desperate at- because your director's wage isn't covering the car payments that you've gotta do or your mortgage or whatever it might be. Um, and, uh, again, as a final example that kind of comes from my own experience with regards to this sales versus profit, uh, relationship, typically, price elasticity of demand would suggest that when you put the price up, your level of demand goes down. So me and my business partner, w- you can imagine we have these club nights, some of them are really cheap entry, you know, uh, uh, one pound for a very early on entry, and then it maybe goes up-

   25. MMMike Michalowicz20:41

       Yeah.

   26. CWChris Williamson20:41

       ... to five and six pounds later on. And, um, uh, we were looking at, we were like, "I just can't get this night to, to become as profitable as we want it to." We know it's popular, we know that it's good, um, how, h- how come, and we're s- looking at stripping back costs and doing this, that, and the other, but you're always concerned about putting your price up because you know there's so many competitors that can come in. They can always jump in and go and get it. And I, it's usually my business partner that's the, uh, the guy that's kind of on the, the grind for the finances stuff, but for once, I was like, "Look, man, let's just, let's see what happens if we put the entry price up across the board by a pound." We did it.

   27. MMMike Michalowicz21:13

       Mm-hmm.

   28. CWChris Williamson21:13

       The numbers didn't move, and you add, because of the way that there's no-

   29. MMMike Michalowicz21:18

       Double the-

   30. CWChris Williamson21:18

       ... there's no variable costs. There's zero variable cost.
3. 30:00 – 45:00

   I love that. So…

   1. MMMike Michalowicz30:00

      uh, the University of Mississippi and the power of this business hierarchy of needs and how making shifts like you're saying, and just changing the perspective that you can generate the same amount of income with a lot less effort. Thi- this story just shocked me. So University of Mississippi is in what we call the Southeast Conference. This is a conference of universities, and there's I think 15 universities in there. S- uh, University of Mississippi, also called Ole Miss. Uh, Ole Miss, uh, wa- had the lowest, uh, applicant rate of all the SEC schools back about 15 years ago. So y- people were applying everywhere but Ole Miss. And they realized this is a sales problem, right? "We're not getting enough applications, not enough prospects." Well, they do a study and they realize that students pick a university within typically five minutes of visiting that campus based upon how the campus looks. It's a very instinctual, "I like this place, looks beautiful, I'm in," or, "This place looks like shit, I'm out." Well, Ole Miss unfortunately had the reputation of looking like shit. So that was a sales problem. They weren't attracting enough prospects. Sometimes in this business hierarchy, you can get two birds with one stone. Well, they realized they need to beautify the campus. They talked to... there's a guy named Jeff McManus there. He o- was the, uh, oversaw the landscaping at Ole Miss.... and found that the, uh, landscaping team couldn't maintain this 1,000-acre property, uh, adequately. They could just keep up with the mowing and that was it. They couldn't do the beautification projects, installing plants and flowers. Well, Jeff, uh, talks with his team and says, "Why, why are we struggling to beautify the campus?" And they said, "Because we're so inefficient." So the m- the team talked about a challenge at the order or efficiency level. He said, "Well, what's the problem?" These guys said, "We have these sit-on mowers that we go r- running down on the campus, mowing the lawns, but the tree limbs are so low that we get to j- jiggle back and forth around the tree limbs to mow. When we get to a mulch patch where we have all the mulch, they're square patterns and we have to do these angular cuts and it slows us down." So they made some suggestions. They said, "Let's just cut the tree limbs up about two or three meters so that we can go right under the tree limbs in a straight line. Let's make the mulch patterns oval-shaped so we can do s- sweeping motions and keep going on." Th- they made other changes too, but it was all about the efficiency of these mowers. They were able to mow the entire 1,000-acre property now in half the time, which meant the other half their time, they had available to do beautification projects. Within a year of these changes, the efficiency at Ole Miss had improved so much, the beautification projects were, were implemented. Application rates started to just skyrocket back in early 2000, because now students were coming to campus and saying, "This is beautiful." Ole Miss today, um, holds the prestigious title of having one of the most beautiful campuses in all of the United States because they identified the hierarchal needs. They said, "We have a sales issue." The sales issue was triggered by another opportunity in efficiency. They combined the two, killed two birds with one stone, and Ole Miss, you know, benefited in a significant way.

   2. CWChris Williamson33:05

      I love that. So let's move, let's move from profit to order.

   3. MMMike Michalowicz33:08

      Yeah. Yeah.

   4. CWChris Williamson33:08

      How are we, how are we, how are we moving from profit to order?

   5. MMMike Michalowicz33:11

      Yeah. So the, the question is, do we have enough stability in the organization to bring about organizational efficiency? Some businesses try to get more and more efficient. How do we get more done with less effort without considering the demand it puts on resources to do that? As you bring more efficiency to a business, it takes more effort to achieve it. Uh, one, one example, too, is in scalability. The, the bigger you get, efficiency works to your advantage. There was a manufacturer I interviewed in Pennsylvania. They make play sets. They were the, at the time, before they sold their company, they were the biggest play set manufacturer. They're now part of a conglomerate. And they had this massive, massive machine, and, uh, this machine would paint the play sets. Well, what was interesting was the setup for a machine to get ready to start running a run could take about three to four hours of effort, maybe even more time. So when, when you spend three or four hours doing it, if one play set goes through and it gets painted in five seconds, it didn't get painted in five seconds, it got painted in four hours and five seconds. Well, when the second one went through, it didn't get painted in five seconds, it got painted in two hours and five seconds, right? Because that setup time has been split in half. As more would go through it, the setup time became less and less important. So once you really get the steam rolling and they were sending thousands of set of, uh, play sets through, they are making money, big time. Well, that's why efficiency is so important at this level. We first need to have some kind of sales, consistent sales in there, profitability, sustainability, and that needs to be at a level of significant enough that we start focusing on efficiencies because it brings value back to the organization. That's how it works. And as you get more efficient, it may trigger you to say, "Now we can support more sales. Let's go back to the sales level." So instead of climbing a ladder here, we start cycling back down. We build the base of sales stronger, allows more profitability, allows more efficiency, and we cycle back down and we'll start ping-ponging around, uh, as the business grows. Kind of like a, like a volcano. Uh, a mountain is formed by a volcano flowing down more lava and then yet again and again and the mountain gets bigger.

   6. CWChris Williamson35:10

      Yeah, I get it. The... So order, your middle section of the-

   7. MMMike Michalowicz35:15

      Yes.

   8. CWChris Williamson35:15

      ... of the pyramid, I think this is where me and my business partners spend a lot of our time.

   9. MMMike Michalowicz35:19

      Yeah.

   10. CWChris Williamson35:19

       We're very, um, process-oriented. We like to have... There's a document written for everything. Anything that's ever happened that we think might happen again, there's a process written for it. And I think you touched on that about the, um, the owner or the CEO or the MD or the partner or whatever being ill or being unavailable-

   11. MMMike Michalowicz35:37

       Yes.

   12. CWChris Williamson35:37

       ... for a period of time and the business being able to continue without them.

   13. MMMike Michalowicz35:41

       Yeah. I, uh, I call it the four-week vacation. And, uh, sometimes four-week vacations are not planned. That's when you just-

   14. CWChris Williamson35:45

       We're all on one at the moment.

   15. MMMike Michalowicz35:47

       Yeah. Are you?

   16. CWChris Williamson35:47

       We're all on one at the moment. Yeah. Well, well, I mean-

   17. MMMike Michalowicz35:49

       Well-

   18. CWChris Williamson35:49

       ... it's a corona vacation, isn't it? Yeah.

   19. MMMike Michalowicz35:51

       Yeah, yeah. Oh, yeah. We're... Yeah. Touche. We're all on that. But it was funny. I, you know, I speak a lot in the US, occasionally in Europe. And, uh, in the US, no one takes vacation. You know, you're, you're actually, uh, considered weak if you don't work through vacations that you do take. And it's a horrible mentality because the problem is a business becomes, uh... Is being carried on the back by the business owner and if they are taking, have a coronavirus or something, the entire business stops because the business owner has failed and it can go under. So the four-week vacation, the idea is if someone can leave a business for four consecutive weeks and the business continues to flourish with them fully disconnected, physically and digitally, there's a business that's no longer dependent on the owner. It can grow on its own. Well, when I, I toured through Europe, I was in Germany recently, I'm like, "You gotta take this four-week vacation." You know, people laughed at me. They said, "Welcome to August." Uh-

   20. CWChris Williamson36:39

       (laughs) Yeah, man.

   21. MMMike Michalowicz36:41

       ... Europe shuts down.

   22. CWChris Williamson36:42

       Yeah.

   23. MMMike Michalowicz36:42

       And it's like, oh my god, this is predominantly an American phenomenon, but sadly, it's, it's seeking... It's kind of seeping out all over the world that we need to be workaholics and that's wrong. We, we actually need to prove that we can remove ourselves from the business because it will happen. Maybe it's not a vacation, maybe it's an illness or you get hurt, but it will happen and we need to remove that dependency of, of being on an owner.

   24. CWChris Williamson37:05

       Anyone that's listening who runs a business or even is just in a business where you get to know who the CEO is, just take a second and think what would happen if the boss left for four weeks now? And especially if you're a business owner, that visceral, that fear that you're, you've got that's rising in your chest that makes you want to throw up onto your AirPods, um, that's, that is, that's how I, we felt for a very, very long time. And especially in this world now where increasingly you've got-... lots of small businesses, you know. I wouldn't like to guess what the average number of employees is in a business in the UK, but I'd guess maybe something like 20, probably, you know, like your 20 or 50, something like that, like a typical, typical s- size company.

   25. MMMike Michalowicz37:50

       Mm-hmm.

   26. CWChris Williamson37:50

       And that means that the owner's moved up through the ranks. They know the office, they b- they, the landlord that owns the thingy, they go out for beers with the guy that owns the office block, they... You know, everything, every little bit, and you've got your claws into all of these different sections of it.

   27. MMMike Michalowicz38:04

       Yeah.

   28. CWChris Williamson38:04

       And every one of those claws needs unpicking, one by one by one-

   29. MMMike Michalowicz38:08

       (laughs) Yeah, yeah.

   30. CWChris Williamson38:09

       ... all the way along, to allow you to relinquish that control. It's very emotionally... For something that's supposed to be sales, profit, order, efficiency-
4. 45:00 – 49:28

   Yeah, yeah. So the…

   1. CWChris Williamson45:00

      you've said as well, some people kind of set their sights on the peak of the mountain and everything else falls away.

   2. MMMike Michalowicz45:04

      Yeah, yeah. So the answer is no, not everyone should do it. We should speak to what our heart calls out to do. I, I have a friend who's got a business that does 15 million US. It is efficient, it doesn't need him, he's making money, and he's like, "I'm off to the golf courses." He's like, "I'm gonna go golfing every day-

   3. CWChris Williamson45:19

      I love it.

   4. MMMike Michalowicz45:20

      ... of my life now." Yeah. And, uh, yeah, and, uh, I'm like, "That is good." And I actually would argue it's more than good, it's noble, because the company is providing for employees. It is giving, uh, great services. It's, it's supporting the economy. But I also feel one day he'll wake up and say, "Is this all there is?" And I think that's the calling. When there's that sensation, "Is this all there is?" we realize that our business, or a new business, can be a platform for expression. I, I've had, for me, that transition. I, I had businesses that made money and I, I became a millionaire, and, uh, I thought it was all about the cars and the big house and the vacation house in Hawaii. I thought that's what it was. And then I had the awakening. For me, I said, "No, no, there, there's something else going on." And, uh, that's when I decided to devote myself to having, uh, impact and legacy. Additionally, I'm absolutely responsible to master sales, profit, and order. You can't skip levels here. You can't just go out and say, "I'm gonna change the world." That's a business that'll collapse on itself. So I am very regimented in driving sales that are adequate to support profit, profit that can bring about efficiency, in order for me to have impact and legacy.

   5. CWChris Williamson46:27

      Man, I love it. Uh, before we go, I know that we're tight on time, I got one final thing. Uh, uh, upon you speaking about the fact that you, um, manifested some of this material wealth, then got red-pilled either by a combination of yourself and the way that you ... the place that you were in your life, and then-

   6. MMMike Michalowicz46:42

      Yeah.

   7. CWChris Williamson46:43

      ... realized that wasn't it. Um, I was listening to Naval Ravikant on, uh, Tim Ferriss, and he gave this quote, and man, it, it just hit me straight between the eyes. And he said, "It is far easier to fulfill your material desires than it is to renounce them."

   8. MMMike Michalowicz46:59

      (laughs) Touche. Very true.

   9. CWChris Williamson47:03

      I, I wonder whether or not part of your transcendence, this fulfilling of potential, uh, uh, and the, the change of dynamic has been serviced by the fact that that box has been ticked, that Michael no longer has anything to prove on the, "Yeah, I've had the home in Hawaii. I've had the this."

   10. MMMike Michalowicz47:23

       Yeah.

   11. CWChris Williamson47:24

       I think, I think a lot of people might need to go through that fire and actually tick those boxes. Does that make sense?

   12. MMMike Michalowicz47:32

       Uh, it, it totally makes sense. Like, it's funny. So we all know or heard that it's not about the money, it's not about the acquisition of stuff. Um, but I also agree that the only way for most of us to discover that is to go through the experience.

   13. CWChris Williamson47:49

       It- it's all well and good someone telling us that, but look at the people who say it.

   14. MMMike Michalowicz47:53

       I know. As they, they fly in their private jet over you and say-

   15. CWChris Williamson47:57

       Fuck. Just fuck you, Warren Buffet. Like, stop telling me about how zen you can be and how easy-

   16. MMMike Michalowicz48:01

       Yeah.

   17. CWChris Williamson48:01

       ... and simple life is, because you no longer have to play that game.

   18. MMMike Michalowicz48:05

       Exactly.

   19. CWChris Williamson48:05

       You have already done it. So man, I, I've absolutely loved today. Fix This next, your book, will be linked in the show notes below.

   20. MMMike Michalowicz48:11

       Thanks, brother.

   21. CWChris Williamson48:11

       If people want to hassle you online, where should they go?

   22. MMMike Michalowicz48:15

       Go to mikemotorbike.com. It's actually Mike Michalowicz, but no one can spell Michalowicz. Mike Motorbike, as in the motorcycle-

   23. CWChris Williamson48:22

       (laughs)

   24. MMMike Michalowicz48:22

       ... is my nickname from high school.

   25. CWChris Williamson48:24

       Yeah.

   26. MMMike Michalowicz48:25

       S- so that'll forward to my site. My books are there, free chapters. I used to write for the Wall Street Journal, you can get that, and I have my own podcast, uh, there too.

   27. CWChris Williamson48:32

       What's the podcast called?

   28. MMMike Michalowicz48:33

       Uh, it's called Entrepreneurship Elevated.

   29. CWChris Williamson48:35

       I love it. That'll be linked as well. You know what to do if you've enjoyed this episode. Like, share, and subscribe. All of the stuff that we've gone through today will be linked below. Man, I think I really love the framework. I think it's-

   30. MMMike Michalowicz48:46

       Thank you.

Episode duration: 49:28